Oracle Too Cheap To Sell, Too Confusing To Buy, Says Morgan Stanley

In a report published Wednesday, Morgan Stanley analyst Keith Weiss maintained an Overweight rating on Oracle Corporation ORCL, with a price target of $50. An analysis of Oracle's 4Q results showed that the shift towards subscription cloud revenues had a positive impact on license growth. Analyst Keith Weiss pointed out, "Oracle is posting mid-single digit pro-forma organic constant currency license growth in FY15." The analysis also suggested that growth improved throughout FY15, Weiss added. Oracle's software billings also grew for all of FY15. In the report Morgan Stanley noted, "Additionally, assuming the majority of the Cloud transition is occurring in Oracle's legacy applications business, rather than database/tech, we estimate that Oracle's applications grew organically ~12% in Q4 and ~14% in FY15 vs our estimated non-adjusted numbers of (37%) in Q4 and (9%) for the year." Although Oracle's transition to cloud is expected to have long-term positive impacts, such as "higher customer lifetime value and faster pace of innovation," the company's management needed to provide a specific cloud-transition roadmap. "Data and commentary from the FY15 10K support Oracle's challenging FX environment, ongoing transition to the Cloud, and declining sales productivity. Software license contribution margins worsen from the cloud transition, as the majority of efficiency declines come from license productivity," the report added. Oracle's growth prospects are expected to be continue to be driven by the potential strength of the upcoming 12c database cycle, growth of the company's Cloud business and stability in the core maintenance revenue stream.